Yellen’s task: Point to continued low rates without badmouthing economy

Federal Reserve Chairwoman Janet Yellen’s task in two days of testimony to Congress will be to keep the market focused on the fact that rates will likely remain low for some time to come without appearing to badmouth the economy.

Yellen will testify to the Joint Economic Committee on Wednesday at 10 a.m. Eastern and the Senate Budget Committee on Thursday at 9:30 a.m.

“There are few more effective ways to to trample on any ‘green shoots’ that might be cropping up than to have the central bank deliver dour pronouncements about the state of business conditions,” said Lou Crandall, chief economist at Wrightson ICAP.

The market would love to hear about possible tweaks to the Fed’s exit strategy but may have to wait until May 22 when the minutes of the latest policy meeting are released, Crandall said.

The Fed signaled that it discussed the exit because it took the trouble to publicly give notice that the first day of their last policy meeting on April 29-30 was also technically a meeting of the Fed Board of Governors. Under the Fed’s sometimes arcane rules, the Fed board has some sole responsibilities in the exit, for instance the setting of the interest rate on excess reserves.

Rep. Kevin Brady, a Republican of Texas who is chair of the Joint Committee, said in an interview with MarketWatch that he will press Yellen to begin hiking rates “sooner rather than later.”

“I am concerned the Fed will look to delay normalization rather than move it forward,” Brady said.

Yellen won’t face overly hostile questions as Republican fury at the Fed has eased, said former Congressional Budget Office Director Douglas Holtz-Eakin and now president of the American Action Forum, in an interview.

“I think the heat has come down between the Fed and Republicans,” Holtz-Eakin said.

Tempers flared in the fall of 2010 when the Fed began discussing a second round of bond purchases which to Republicans appeared to be timed to help Democrats.